At the end of the year, a company offered to buy 4,230 units of a product from X

Question

At the end of the year, a company offered to buy 4,230 units of a product from X Company for a special price of $12.00 each instead of the company's regular price. The following information relates to the 67,900 units of the product that X Company has already made and sold to its regular customers:

The special order product has some unique features that will require additional material costs of $0.89 per unit and the rental of special equipment for $4,000.

5. Profit on the special order would be?

6. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost, with demand falling by 800 units. This loss in sales will cause firm profits to fall by?

Total    Per-Unit Revenue $1,222,200 $18.00    Cost of Goods Sold    Variable 431,844 6.36       Fixed 146,664 2.16    Selling and Administrative Costs    Variable   85,554   1.26       Fixed     71,295   1.05    Profit $486,843 $7.17   

Explanation / Answer

v

Incremental income from Special order: Incremental revenue (4230 units@12) 50760 Less: Incrementla cost: Variable COGS (4230*6.36) 26902.8 Variable Selling expense (4230*1.26) 5329.8 Additional material cost (4230*0.89) 3764.7 Additoanl rental cost 4000 Net increase in income 10762.7 Loss f profits from loss of sales: Loss in sales units Revenue Sales (800*18) 14400 LesS: Vraiable cost (800*7.62) 6096 Loss of income 8304

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